The Business Development Fund (BDF) is changing its business model to address access to finance gap that is said to be responsible for holding back a majority of emerging small- and medium-scale enterprises.

The change will see prospective benefiticiaries approach BDF directly for appraisal before projects can be submitted to banks for funding as opposed to an indirect model that has been in use previously that meant delegating roles of appraisal of projects to the banks.

Under the former model, banks would conduct full evaluation and investigation of the project proposals and if they were comfortable with the projects and were willing to finance, but if the client was without sufficient collateral, the bank would write to BDF requesting for supplementary collateral.

Innocent Bulindi, BDF's chief executive, said the direct guarantee model will be implemented with the help of business development advisors at the sector level.

"We have business development advisors at every sector through an arrangement with the Ministry of Trade and Industry where they pay for these services because some SMEs may not be in position to afford the services of consultants to prepare their business plan,” Bulindi told The New Times.

The business development advisors will identify potential entrepreneurs, listen to their pitches on why they would like to borrow and prepare for them their business plans.

The approach to have BDF pre-screen projects before they are taken to the bank for possible funding has been preferred by experts as the institution has a better understanding of the requirements of the banks.

"What happens with the pre-finance process is that we will improve the probability of success for the applicants to get a loan as we better understand the financing requirements and they get to approach banks with a bit of knowledge,” Bulindi said.

Rejected loans

An August 2014 Monetary Policy Report highlighted that over 40 per cent of the loan applications rejected was due to poor business plans.

In the period between December 2013 and June, 4.2 per cent (4,946) loan applications were rejected, which Bulindi considered a significant number.

"The main reasons for rejection were poor repayment capacity due to lack of project profitability (40 per cent),” the Monetary Policy Report showed.

Bulindi said it meant that people were approaching the banks without paying attention to detail.

They have an idea that they have not put up together and polished to make business sense, he said.

Although not the ultimate solution to address the challenges to access to finance, Bulindi said it is part of a solution to create the much desired access to finance ecosystem.

With plans to establish 10 more business development centres to bring them to 17, the model is expected to be operational by January.

Rwanda Development Bank chief executive Alex Kanyankole told The New Times that the model is good news to banks as BDF will have evaluated the projects as well as surety of the guarantee.

"We expect that this will largely increase access to finance as well as capacities of small and medium enterprises,” he said.

Kanyankole said some business ideas presented to banks lack a logical framework of implementation, hence the complaints of lack of finance.

"We need a multifaceted approach that will address issues of skills and business management making access to finance easier. All banks are willing to give out money; it is just that there is an element of risks with lack of business management skills one of them,”Kanyankole said.